The decision leaves AGL without a destination for waste water if or when it is permitted to resume hydraulic fracturing – known as fracking – at its pilot CSG plant near Gloucester in the state's mid north.

"[C]concerns were expressed within the community about the transportation of CSG flowback water from the project into the Hawkesbury Local Government Area and treatment by Worth Recycling Pty Ltd," Mr Jackson said in a statement.

Mr Jackson said Worth had also stopped taking CSG waste water from AGL's existing field at Camden, on Sydney's south-western edge. Fairfax Media sought confirmation from both AGL and Worth.

"There were significant concerns about the risks associated with the transit of the water over such a large distance and also fears by river users of potential contamination of the Hawkesbury River or the sewerage treatment facility," Ms Lyons-Buckett said.

"Whereas Worth Recycling were committed to recycling and selling the water rather than discharging it, there remained concerns as to the disposal of residual contaminants and the risk of accidental spillage either during transit, while stored or during treatment," she said.

AGL at the time attributed the presence of the toxic chemicals - benzene, toluene, ethylbenzene and xylenes – to natural sources, saying it had not used them in its own fracking operations.

The EPA, though, criticised AGL, saying it had identified the chemicals on January 15 but only disclosed details of them 12 days later.

A spokesman for AGL said Worth Recycling had collected flowback water from the Waukivory Pilot Program only over a five-day period from January 5 to 9 this year.

"Transportation and treatment of flowback water has not occurred since," he said, declining to say whether AGL had an alternative destination for the waste.

"AGL is in clear breach of the Fracking Code of Practice," said John Watts, a spokesman for anti-CSG group, Groundswell Gloucester. "That code requires AGL to explain their proposed method for dealing with flowback water and they have no means for disposing of this toxic fluid."

"They clearly have no plan and their operations are a shambles," Mr Watts said. "This is another cogent reason why Minister Roberts should immediately suspend AGL's licence."

AGL was forced to divert tankers of the waste the Hawkesbury region in December after reports in the Newcastle Herald alerted Hunter Water that its network was being used to discharge the water after processing. The water agency had told both AGL and its contractor, Transpacific Industries, not to bring the waste to its region.

"It was reckless of the NSW government to allow fracking to proceed without a waste disposal plan in place," Jeremy Buckingham, the Greens mining spokesman, said.

"The fact that there is no safe way to dispose of the millions of litres of toxic salty water produced by fracking has always been a fatal flaw," Mr Buckingham said. "This is a key reason why the Greens want coal seam gas permanently banned."

"The management of flowback water must be approved by the EPA and [the Department of Resources and Energy] before any operations are undertaken," he said, adding the department's report will be made public.